Ford profit driven down by North America warranty costs

April 26, 2014 - 1:55:53 am
The new 2015 Ford Mustang GT on the observation deck of the Empire State Building in New York.

DETROIT: Ford Motor Co posted a lower-than-expected first-quarter profit yesterday as the No. 2 U S automaker saw $400m in higher warranty costs in North America, sending shares down 3.4  percent.

The company also saw incentives in North America rise in the quarter due to heavy competition and an aging lineup of vehicles it will address with the launch of 16 new models in the region this year.

Fitch Ratings analyst Stephen Brown called 2014 a transition year for Ford and said earnings will improve in the second half.

“They’ve got a few challenges out there, but ... the company has a lot of new products coming online this year. They haven’t seen the benefits (of the new vehicles) on dealer lots yet.” Ford Chief Executive Alan Mulally, 68, told analysts on a conference call that there was no change to plans for him to remain at the company through the end of the year. Earlier this week, a source said that Ford will soon name Chief Operating Officer Mark Fields as Mulally’s successor. 

While Ford adjusts its warranty reserves every quarter, Chief Financial Officer Bob Shanks said the total was larger in the first quarter because the company has seen more field service actions, such as safety recalls and addressing customer complaints, over the last two years.  

The company affirmed its forecast for pretax profit for 2014, a year in which it is launching a record 23 new vehicles globally. It also said it is amending and extending its revolving credit facility. Shanks said the underlying business remains strong.

“The run rate is very healthy and we feel that we’re moving forward very nicely in terms of what we expect for the year and setting us up for stronger growth and stronger profitability in 2015 and beyond,” he told reporters at the company’s Detroit headquarters.      

Net income fell 39 percent to $989m, or 24 cents a share, from $1.61bn, or 40 cents a share, in the year-earlier period.  The quarter included the $400m in additional costs for warranty reserves in North America for vehicles from as early as the 2001 model year, and $100m in costs related to higher freight and other items due to the harsh winter in North America.